Has Innovation Sailed Away?

February 1, 2009byPeter L. Berger

There are a number of economic reasons for the recent shift of many American manufacturing companies to non-American ownership, including lower margins in the retail segment and the general shift of manufacturing to other countries. Many non-American owners are vertically integrated and can realize profit at any level of jewelry production and sales. In some instances, they own retail outlets. This vertical integration reduces the need for profit at every level.

Traditionally, the line between manufacturers and retailers was fairly rigid, as was the line between manufacturers and casters. That also applied to vendors of diamonds and gemstones. For each segment of the industry to maintain profitability, individual players had to compete through strong innovation. America has long been a center for innovation, and innovation in the jewelry industry has long been a staple among the leaders.

Innovation can take many forms, including new manufacturing materials and processes, brand naming, strong marketing, specialization, online sales, and overall marketing leadership. Recent innovations in manufacturing include laser etching, stone-enhancing techniques, and laser-cutting.

Top manufacturers have always led with new and original designs, some of which captured strong market positions and maintained them over many years. Consider the Fantasy Ballerina Design, the Quadrillion, Mother and Child, and David Yurman jewelry. Hearts On Fire has maintained leadership with strong brand identification, as have many common high-end brands such as Cartier, Chanel, and Movado.

In the October 2008 edition of JCK, editor-in-chief Hedda Schupak reminded readers of the need for quality and innovation at the retail level (“Don’t Blame the iPod,” p. 104). She gave some examples, including ways to change basic diamond stud earrings.

The need for change and innovation in the jewelry industry remains great. It’s possible, however, that new, non-American owners do not feel the need for innovation. It may be that garden-variety jewelry sold to mass merchants need not return great profit to the manufacturer if profit is found in other aspects of the manufacturing and selling process.

Along with innovation comes the need for legal protection. Those who seek to increase profit margins are those who innovate and stand behind their innovations to keep encroachers away. If the shift in ownership has lessened the value of innovation, this will be reflected in decreasing levels of originality at every step in the jewelry sales process.

I conducted a random sampling of issued jewelry patents by the U.S. Patent Office in Design and Utility patent classes and found approximately a 25 percent decrease in issued patents over the last 10 years. That contrasts with the overall increase of issued patents for all fields in the same period. This suggests that innovation has decreased in the jewelry industry.

Some will continue to see value in traditional American innovativeness and apply it to their jewelry lines. Keeping a strong American presence in the industry may encourage that. Additionally, those who are purchasing American companies could become attracted to that methodology to increase sales and margins. But if the bulk of the industry focuses on garden-variety mass marketing techniques, price will be the only competitive factor.

The jury is still out. The past several years have seen a marked change in the investment that companies make in new products and ideas. But those new owners purchasing American companies may see the value in investing in the type of innovation that the American jewelry industry has been known for. Margins go up. Profits go up. And the industry moves toward leadership in the retail segment, spawning carryover into related retail categories. This is how Tiffany, Cartier, and Timex grew in their categories and expanded them. With innovation waning, the opportunity to distinguish oneself in this industry becomes easier.